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Measures of firm performance and concentration: Stylized facts and a dilemma of data reproduction

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  • Weber, Jan David
  • Scharfenaker, Ellis

Abstract

Economists and policymakers have used the increase in the concentration of return on invested capital (ROIC) in publicly traded US firms over the last decades as evidence for the decline of competitiveness in the broader economy. Principle support for this claim is a graph presented by the Council of Economic Advisors (CEA, 2016) that reproduces data from the McKinsey and Company’s book on Corporate Valuation. We demonstrate that the key findings associated with the evolution of the ROIC cannot be broadly reproduced using Compustat data and established accounting measures and calculations. Further, we find the recommended data filtering strategies can result in discarding more than 75% of the available data. We show that using the full information dataset can lead to significant changes in economic conclusions. We advocate for transparency in calculations and rationalization of data pre-processing.

Suggested Citation

  • Weber, Jan David & Scharfenaker, Ellis, 2024. "Measures of firm performance and concentration: Stylized facts and a dilemma of data reproduction," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523005153
    DOI: 10.1016/j.econlet.2023.111489
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    References listed on IDEAS

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    2. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    3. Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
    4. Jan Keil, 2017. "Explaining the Concentration-Profitability Paradox," Review of Political Economy, Taylor & Francis Journals, vol. 29(2), pages 209-231, April.
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    More about this item

    Keywords

    Return on invested capital; Data reproduction; Firm concentration; Competition; Statistical equilibrium;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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